How can I protect my stock investments during a market crash?

To protect your stock investments during a market crash, focus on portfolio diversification, investing in defensive stocks, setting stop-loss orders, and maintaining cash reserves. Avoid panic selling and stay committed to long-term investment strategies to navigate market downturns effectively.

1. Diversify Your Portfolio

Spreading your investments across multiple assets reduces risk during a crash. Consider:

• Investing in different sectors to avoid concentration in one industry.
• Holding a mix of stocks, bonds, and commodities for balance.
• Exploring international markets to reduce domestic risk.

2. Invest in Defensive Stocks

Defensive stocks perform well even during downturns. Examples include:

• FMCG stocks, as consumer goods remain in demand.
• Healthcare stocks, which are recession-resistant.
• Utility stocks, providing essential services like electricity and water.

3. Use Stop-Loss Orders

A stop-loss order automatically sells your stock when it reaches a set price, limiting potential losses.

• Trailing stop-loss orders adjust as the stock price moves up.
• Fixed stop-loss orders help maintain disciplined exits.
• Volatility-based stop-loss orders adjust based on market conditions.

4. Maintain Cash Reserves

Holding cash gives you flexibility to buy quality stocks at lower prices during a crash.

• Keep an emergency fund with at least six months' worth of expenses.
• Maintain 10-20 percent cash allocation for market opportunities.
• Avoid excessive leverage to minimize financial stress.

5. Think Long-Term

Market crashes are temporary, but strong companies recover over time.

• Avoid panic selling and focus on high-quality stocks.
• Rebalance your portfolio as per market conditions.
• Stick to your investment plan and stay patient.